I keep having this conversation
on a personal level, so I thought it might be timely to review it in this forum.The topic is energy; electricity and oil.

2006 is the latest year that my
source, the U. S. Government Energy Information Administration, has published
figures.In that year, electricity
in the United States was generated by the following fuels:49% coal; 20% natural gas; 19% nuclear; 7% hydro (meaning dams); 2.4%
other renewables (including wood, municipal solid waste, landfill gas, tires,
agricultural byproducts, geothermal, solar and wind); and, finally, only 1.6% of
our electricity is generated by petroleum.

Thus you can see that we are not
dependent upon oil for our electricity.

Where we are dependent on
oil is on the road.Our automobiles
make up the bulk of our petroleum consumption.From the same source we find that Americans use, on average, 20 million
barrels of oil per day, or roughly three gallons of unrefined crude per person.

Of this, 12 million barrels are
imported from more than 25 countries.Fully
46% of that 20 million barrels is refined into gasoline for our automobiles; the
next big uses are home heating oil, at 20%; and jet fuel, 7%.(Other uses are plastics, lubricants, etc.)

Which leads me to the Strategic
Petroleum Reserve.The government
has recently decided to halt the filling of this reserve, which now stands at
702 million barrels, out of a maximum capacity of 727 million barrels.Until recently we had been pumping 76,000 barrels a day into salt domes
in Texas and Louisiana.

Much of the oil that we have been
pulling up out of the ground (in order to pump it back into the ground) comes
from domestic drilling in the Gulf of Mexico, and is taken by the government in
lieu of royalties from the drillers.That
accounts for about 60%.The balance
of the supply has come from all over the world.

Now, you can look at the 76,000
barrels a day and in comparison to our usage of 20 million barrels, you could
say it appears to be minor.And you
would not be wrong.Our total
reserve only comes to less than two months of consumption (of our imports).

But you could also look at the
constant drain on supply, and reflect on the effect it has on prices.At a recent high price of something north of $136 a barrel, our Strategic
Petroleum Reserve is approaching a value of one hundred billion dollars.And it is hard to say that a hundred billion dollars of product removed
from the supply has not affected the price.

Those, remember, are your tax
dollars being pumped into the ground.

At this point you can understand
why I believe that the future of automobiles in America is ultimately electric.

It is interesting to note that
while we are importing more oil than ever, Americans are actually using a
smaller percentage of the world production now than in 2000.U.S. imports have shrunk to 14% of the world total, down from the peak of
nearly 19% in 2000.Over the last
seven years our imports have risen by over 60%, but imports by the rest of the
world have gone up more than 170%.Today,
developing nations use over 41% of the global oil supply, up from 33% just seven
years ago.

So global production is up, but
usage worldwide is also much higher.It
is simple supply and demand:until
the world reduces its hunger for petroleum, you can expect prices to remain
elevated.

I would be remiss if I did not
remind you that the falling dollar is also part of the price increase in the
U.S.Thus, Europe, for example, has seen prices rise, but by a
smaller percentage than here.

I have said in the past that all
markets have a psychological aspect, and that applies to the oil market as well.It is certainly possible that we may look back on this period, marked by
the cessation of the filling of the SPR, as the beginning of a psychological
turning point in the market.

But Iím not holding my breath
hoping that prices will abate anytime soon.Demand is simply too strong.I
personally would not be surprised to see $200 oil.I would also not be surprised to see it later tumbling back to earth as
we develop alternate sources of fuel.

In the end there are no easy
answers to this problem.But my
guess is that we wonít see substantive change in terms of alternate energy
until gasoline is in the area of $10 a gallon.At that point, you, too, may find an electric car appealing.